Updated December 7, 2021|4 min read
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When you take out a life insurance policy, you pay a premium to keep the policy active. If you stop paying those premiums your policy will lapse, meaning you lose your life insurance coverage and your beneficiaries won’t receive any life insurance money.
A policy lapse won’t happen immediately after one missed payment. All life insurance companies have a grace period, usually around 30 days, which allows your policy to stay in force temporarily if you need to make a late payment. You need to resume payments before the end of the grace period to keep your coverage.
Your life insurance coverage lapses if you stop paying your premiums.
You have a 30- to 31-day grace period to pay late before your policy lapses.
It’s possible to reinstate your policy, but you may pay fees and higher premiums.
When your life insurance policy lapses, it is no longer active. Without active life insurance coverage, your beneficiaries lose out on that financial protection if you die.
It’s easy to miss a premium payment: Maybe your address or banking information changed and you forgot to let your insurance company know. Or, maybe your life insurance policy doesn’t fit into your budget anymore.
With any type of life insurance, your insurer is required to inform you when your policy is in danger of lapsing, and then again when it has officially lapsed. If you don’t make a payment before your policy’s grace period ends, you’ll lose coverage.
If you own a term life insurance policy and haven’t paid your premium by the end of the grace period, you lose your life insurance protection. You won’t receive a refund of any premiums you paid previously.
Most cash value life insurance policies, such as whole life insurance, include a feature called an automatic premium loan. This allows your insurer to use your policy’s cash value to pay your premium if you miss a payment and the grace period ends.
However, if there isn’t enough cash value to cover your premiums — or if it’s depleted by continued non-payment — your policy will lapse.
Every state’s department of insurance requires life insurance companies to provide a grace period for late payments. That period is usually 30 or 31 days and begins on the due date of your missed payment.
During the grace period you’re still fully covered by your policy, so your beneficiaries will receive the death benefit payout if you die. But you need to pay your missed premium to keep your policy active past 30 or 31 days. Depending on your insurer’s guidelines, you may also owe a late fee.
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You usually have the option to reinstate your life insurance policy after a lapse. Start by contacting your insurer. The process for reinstatement varies for each company.
Reinstating your policy is not as simple as making a phone call. You’ll also need to:
Prove your evidence of insurability
Pay back missed premiums (plus late fees or interest)
Restart your contestability period
Typically, life insurance companies allow you to reinstate your coverage within two years of a policy lapse.
“Each carrier tends to have different guidelines for reinstating policies, and reinstatement is often a case-by-case basis depending on the situation,” says Patrick Hanzel, certified financial planner and Advanced Planning Team Lead at Policygenius. “Applying for reinstatement of a policy might involve signing a document stating that your health has not changed. Also, you will need to pay backdated premiums to the date that the policy lapsed.”
Depending on your insurer, you may also need to go through underwriting again. Your provider will evaluate how long ago your policy lapsed and whether you had any red flags in your medical history when you first applied for life insurance.
Some companies won’t require new underwriting if the policy has been inactive for less than six months; others may require only a limited underwriting process.
It will likely take less time to reinstate your coverage than to buy a brand new policy, but the cost of reinstating your policy compared to buying a new one will depend on:
When your policy lapsed
Whether your health status has changed
Purchasing a new policy may be more expensive because life insurance premiums increase with age and underwriting will catch any medical conditions you’ve developed since buying your last policy. However, you may have to pay back any premiums you missed, plus fees, to reinstate your lapsed coverage.
If your lapse is less recent, it may be more affordable to buy a new policy and avoid reinstating a policy that would come with higher premiums and penalties for your missed payments.
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There are a few simple steps you can take to avoid missing a premium payment and jeopardizing your life insurance coverage:
Enroll in automated payments. Most providers allow you to set up automatic bank drafts for premiums so you don’t have to track payments on a monthly basis.
Switch to an annual payment schedule. If it fits your budget, paying premiums annually gives you fewer payments to stay on top of and may come with a discount.
Add a waiver of premium rider to your policy. Many providers offer a waiver of premium rider that exempts you from paying premiums if you become disabled.
Lower your coverage amount. If affordability is a concern, your insurer may let you decrease your death benefit amount or term length, which will lower your premiums.
Life insurance policies financially protect your loved ones if you pass away. You can ensure that protection by doing your part to prevent a policy lapse and knowing what your options are if you lose your coverage due to nonpayment.
If your life insurance policy lapses, then you no longer have coverage and your beneficiaries won’t get a payout from the life insurance company when you die.
If you stop paying your life insurance premiums and your policy lapses, you are not refunded any of the money you paid in premiums.
You may be able to reinstate a lapsed policy within a timeframe set by your insurer. This may require additional underwriting and payment of all missed premiums.
You can generally reinstate your life insurance policy within two years of it lapsing, but the period varies for each life insurance company.